Pricing provides incentives for better choices

A market-based price on carbon pollution is the lowest cost, fairest and most effective way to tackle climate change.

Putting a price on pollution provides incentives to reduce emissions where they are cheapest, breaking the link between economic and emissions growth.

And it provides businesses with the framework they need to invest in new clean energy technology and energy efficiency, creating new opportunities and jobs.

Prices provide real incentives for firms and consumers to shift to low‑emission goods and services.

As the Productivity Commission has shown, when firms and consumers make the decisions, rather than governments, the cost of reducing emissions is lower.

World prices have ranged from A$16 to A$23 /t CO2-e over the past 3 months. This compares to the cost of 'non-market' policies which the Productivity Commission found can range up to hundreds of dollars per tonne.

Providing a fixed price path for the first 3 years will help ease the transition of the economy to a clean energy future.

After the fixed price period, Australian carbon prices will follow world prices, and will reflect the degree of global ambition. World prices are expected to be around A$29/t CO2-e in 2015‑16, with moderate global action.

Choosing a starting price of around A$23/t CO2-e in 2012-13 will allow for a smooth transition to a flexible price period.